Due to the age difference (girl 5, boy 10) I personally would not see it as simple child play. If both children are very young, and the same age, and playing doctor or whatever, then that to me would fall more into child's play. But at the age of 10, I think a boy should know that it's not right to fondle your 5-yr-old sister. Although he is not an adult, 10 seems old enough to know that is wrong. And because of his age, I think it would be easier for him to coerce her than if they were both 5 or both 10.
I know someone who was sexually abused by a sibling. It was more severe, and there was a bigger age difference. The person is haunted by it to this day and goes to therapy for it. It turns out that the older sibling was molested AND also molested other kids in the neighborhood. This all came out later.
I do think the parents need to know...even if it does mean the 10 yr old gets in big trouble with the father. This is a hard question, but, in choosing, sometimes I think we have to say, well, who is the youngest, most vulnerable person in this position, who has to be protected the most? In this case, I think it's the 5 year old girl.
Also, the fact that she told you shows it's on her mind and she is troubled by it.
You are in a tough position.
One more thought...if this is happening when the boy is 10...what is going to happen when he hits puberty? It could go from touching to more. So I do think this has to be dealt with now, among the whole family.
It's just that I have seen the lifelong effects this can have. Leading to suicidal thoughts later in life, trouble with relationships, body image issues, etc. If, when you tell them, you could have a few names of some good therapists on hand, that would be good too. Or books (I'm not sure which ones, there are probably several out there about this subject).